May 17, 2023

State Auditor, treasurer issue joint alert about collateralization of public funds

Thomas Breher

via pixabay

On Monday, the State Auditor’s Office and State Treasurer’s Office issued a joint alert to all New Mexico counties and municipalities.

The required annual audits submitted by counties and municipalities across the state showed that local governments are not appropriately following collateralization laws and Federal Deposit Insurance Corporation guidance, a press release said.

“In recent months, some local governments bypassed the collateral requirements by adding multiple employees or elected officials to bank accounts to secure $250,000 of FDIC insurance for each account signer,” the release said. “New Mexico state law requires banks to have proper collateralization to safeguard taxpayers’ money. Any amount of public money held in banks over the $250,000 insured by the FDIC must be backed by other forms of sureties.”

Collateral is used to protect public funds in the event of a bank collapse. 

The State Auditor’s Office did not comment on the exact number of local governments that may have fallen out of compliance with collateralization laws. The agency is still reviewing the annual audits and has yet to receive some audits. The annual audits are due in December and the office generally begins to post them in January.

“This is why audits are important,” said State Auditor Joseph Maestas. “Without an independent audit, these safeguards would have been bypassed and our public funds could have been in jeopardy.”

The FDIC issues may have come because of recent bank failures and possible concerns from the counties and the New Mexico Municipal League over the safety of public monies, a letter sent by State Treasurer Laura Montoya and Maestas stated.

“This issue is especially consequential with respect to FDIC insurance, because all bank accounts with balances above the FDIC insurance limit of $250,000 must be collateralized consistent with state law,” the alert said. “In recent months, it appears that some agencies bypassed these collateral requirements by adding multiple employees or elected officials to bank accounts to secure $250,000 of FDIC insurance for each account signer.”

Montoya issued a statement that since the practice is not consistent with state and federal law, that her office “will continue to work with government agencies and banks to ensure that New Mexico funds are not at financial risk.”

The annual audits are completed by independent auditors across the state and determine if the entities such as counties, municipalities, school districts and soil and water conservation districts are in compliance with state and federal law as pertains to their financial statements.

“We trust that this Alert will direct attention to the importance of the underlying issue of safeguarding public funds,” the alert stated. “Additionally, we anticipate

clarification of these issues can further assist agencies and banks in reviewing and revising their

policies and internal procedures to ensure compliance with their fiduciary duties.”